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Thousands to finally get cash back after alleged $1.2 billion Ponzi scheme

After all appeared lost in an alleged $1.2 billion Ponzi scheme, thousands of people from Florida to California who invested in real estate notes and mortgages may finally get their first reimbursements by the end of March.

The precise amounts of the repayments are unclear. But they will be made in cash, according to a recent statement issued on behalf of the Woodbridge Group of Cos., which emerged from Chapter 11 bankruptcy proceedings on Feb. 15.

Late last month, the Securities and Exchange Commission announced a Miami federal judge ordered the companies and Woodbridge founder and CEO Robert Shapiro to pay $1 billion in penalties and ill-gotten gains for operating the scheme that targeted individual investors.

The companies entered bankruptcy court in late 2017 after a yearlong investigation by the SEC.

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In a lawsuit filed in federal court in Miami, the commission alleged the companies and their sales agents sold unregistered securities to an estimated 8,400 investors nationally, with close to 800 residing in South Florida and elsewhere across the state.

Investors were promised returns of anywhere from 4 to 13 percent after sinking money into entities controlled by Woodbridge, which got its start in Boca Raton, but later migrated to Southern California.

‘Fictitious business model’

For several years, investors received their promised returns. But the company failed to keep pace with payments to early investors with money from investors who jumped in later, the earmarks of a classic Ponzi scheme, the commission alleged.

In its 2017 lawsuit, the commission alleged Shapiro “made Ponzi payments to investors and used a web of shell companies to conceal the scheme.”

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In a statement, Eric Bustillo, director of the SEC’s regional office in Miami, said that “when Woodbridge’s fictitious business model collapsed, the company stopped paying investors and filed for Chapter 11 bankruptcy protection. The settlement provides for the return of significant funds to investors.”

According to a liquidation plan filed in U.S. Bankruptcy Court in Delaware, investors could receive recoveries between 40 to 75 percent of the money they paid to Woodbridge, depending on the type of investments they made.

Subsequent distributions would take place at the discretion of trustee Michael Goldberg, a Miami-based attorney who heads the fraud and recovery legal practice at the Akerman law firm.

Cadre of sales agents

In late 2017, the Miami regional office of the Securities and Exchange Commission claimed in a lawsuit that Woodbridge and Shapiro operated the scheme under the guise of a real estate investment opportunity.

Woodbridge sales agents — a number of whom attracted investors through newspaper ads, radio talk shows, dinners and lunch events in South Florida — sold so-called “first position mortgages” to investors who helped Woodbridge finance its real estate acquisitions through unsecured notes.

In its suit, the SEC alleged the sales agents violated federal laws because they sold mortgage notes as securities without informing investors of the risks. Some of the agents had been previously disciplined by securities regulators.

Shapiro consented to the entry of an SEC administrative order — without admitting or denying the commission’s findings — permanently barring him from associating with most people in the securities industry, and from participating in any offering of a penny stock.

But in a statement released to the news media in January, he said: “Mr. Shapiro settled the SEC action without admitting or denying the allegations in the complaint. He is happy to have put this behind him to allow all remaining resources to be focused on obtaining maximum recovery for the benefit of the Woodbridge estate.”

‘Still have a ways to go’

Shortly after the 2017 bankruptcy filing, Shapiro stepped aside as CEO, which paved the way for the court appointment of independent restructuring and recovery specialists to manage the estate and arrange to pay back investors.

In an interview with the South Florida Sun Sentinel, Goldberg said the distribution process likely would last three years. He said he is building up a pool of money from asset sales and from the settlement of lawsuits such as the one brought by the SEC.

Woodbridge investors, he said, would become stockholders in a new company that would trade under its own symbol on the over-the-counter market.

“They can hold [the stock] and get dividends or they can sell it and get money from somebody else and let the other person get dividends,” he said.

But he cautioned that the sale of the real estate and its conversion to cash will be a gradual process.

“We still have a ways to go,” Goldberg said.

Some of the properties acquired and maintained by Woodbridge are “development projects in progress” in “different phases of construction,” he said. Most of the holdings are in California and Colorado, although some are spread among various other locations around the country.

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The most notable among the properties is Owlwood, a storied 12,200-square-foot-Italian Revival mansion in Los Angeles that was once owned by a luxury hotel founder, an oil tycoon and Hollywood celebrities including Sonny & Cher and Tony Curtis. Now listed at $115 million, it was on the market for $180 million as recently as last year, according to published reports.